For a man who once said, “You have to turn your back sometimes,” pertaining to his tendency to go against the grain and delve in out-of-favor bets, one cannot help but be lured into the fascinating investment moves of Canadian investor, Prem Watsa.

Take his top holding of the stock, Research in Motion Ltd. (RIMM), for example.

Acquiring shares of the company in the third quarter of 2010, RIMM declined in market share and stock prices for years, despite its more recent bounce back in market value. As the stock downgraded, Watsa’s holding sky-rocketed. He added 93 percent to his stake in the third quarter, alone.

To add on to the media’s scrutiny of RIMM, as reported by Barron’s, the stock is among the ones that will be dropped from the Nasdaq 100 index on Dec. 24, switched with stocks that drip with more appeal in market value.

Regardless, RIMM remains Watsa’s second largest holding as of the end of the third quarter, right after Johnson & Johnson (JNJ), with RIMM representing 21.1 percent of his 42-stock portfolio, which is valued at about $1.8 billion.

As a widely known contrarian investor, Watsa is approximated to have produced an average return of 8.5 percent in the last 12 months, GuruFocus Scoreboard predicts. His portfolio has extracted about a 23.4 percent return since inception. He is one of GuruFocus’ nominees for Investment Guru of 2012.

With the business world’s recent magnification of RIMM, and the fact that Watsa’s name is attached to the stock, it is always delighting to find reading material, new and old, about the value investor.

One in particular, a popular read for Watsa followers, was an article in Toronto Life magazine, titled “$2-Billion Man,” which spotlighted the life of Watsa. Published in 2009, below is an excerpt:

“Professor Andrew Lo, the director of MIT’s Laboratory for Financial Engineering, studies the psychology of the market. While Lo believes the markets are capable of rational behaviour, he says they become irrational when investors’ animal instincts take over and their pleasure or fear receptors are activated…Lo believes that individuals who, like Watsa…have a more highly developed instinct for fear. They can sniff out trouble well before the average unsuspecting investor. They might be naturally temperate (a kind of market ascetic), but they are also a more highly evolved animal.

‘Either he has experienced this before, so he has a memory of pain or loss,’ Lo says, ‘or he has developed certain models or forecasts that trigger in his brain the potential for pain.’

In Watsa’s case, it’s a bit of both. He’s not only a long-time student of crashes; he also has first-hand knowledge of what it means to almost lose it all.” (Read the rest of $2-Billion Man here.)

The article impeccably captured who Watsa was, and who he continues to be. It provided details that enabled followers to understand his methods as a value investor. Perhaps the article could have even provided a closer understanding about Watsa’s mindset, used each time in crafting his stock picks every quarter.

Throughout the year, there were various stocks that produced prodigious returns in Watsa’s portfolio.

Starting with His Largest Holdings

Year to date, Johnson & Johnson has appreciated by 8.17 percent in market value. While its stock is down today by 0.13 percent, it is trading close to this year’s high of $72 in October – its share price is currently $70. The lowest it traded this year was in June around $51.

Watsa belongs in the top 10 group of investors (that GuruFocus follows) who owns the most shares of JNJ. As of the third quarter, he reported a total holding of 5.9 million shares. This accounts for 22.2 percent of his portfolio.

Making up the fourth largest represented stock in Watsa’s portfolio, Resolute Forest Products Inc. (RFP) stock has gone up 1.31 percent year to date. Watsa first acquired the stock in the second quarter of this year. He currently owns almost 19 million shares of the company, and represents 18.91 percent of the company’s shares outstanding.

Up almost 4 percent today, Resolute Forest Products is trading at $12.85.

Watsa has 3.1 million shares of US Bancorp (USB), which is 5.8 percent of his portfolio. The stock has gone up 18.15 percent this year, trading its highest in October around $35, and trading its lowest in January around $27.

Watsa’s latest move on the stock was a stake reduction in the third quarter by 30 percent.

Watsa owns 35,000 shares of Nam Tai Electronics Inc. (NTE). He first acquired the stock in the first quarter of 2008, starting off with only 25,000 shares. In 2010, he added 10,000 more shares to his holding, and has not touched the stock ever since.

Nam Tai has gone up 163.47 percent this year, trading near its November peak price of $15. Its current price is $13.99, its stock up 3.86 percent this afternoon. The lowest that it traded this year was in March around $4.

Watsa acquired Overstock.com Inc. (OSTK) in the third quarter of this year, and has not touched the company ever since, purchasing more almost 3.4 million shares. It makes up 1.9 percent of Watsa’s portfolio, and Watsa owns 14.45 percent of its shares outstanding.

Year to date, Overstock has delivered 82.78 percent in market value. It traded its highest in November around $15 and traded its lowest in April at $5.

About the author:

Dianne Tordillo

Dianne Tordillo is staff writer for GuruFocus.com. She reports on a variety of financial news, primarily dealing with investor portfolios and stock trades. Her articles also highlight insider trades, as well as the many useful features of GuruFocus.

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